Ebola's Shadow on African Economies: FDI and Remittances

This paper investigates the impact of the Ebola epidemic on foreign direct investment (FDI) and remittance inflows across 28 African countries between 2000 and 2019. While existing literature highlights the economic costs of epidemics within affected countries, limited attention has been given to the broader financial repercussions-particularly on external financial flows and regional spillovers. This study addresses this gap by examining the dynamic responses of FDI and remittances to Ebola outbreaks using a local projection method (LPM) and validating the findings through system Generalized Method of Moments (GMM) to address endogeneity concerns. We construct a unique Ebola shock variable that captures both direct and indirect exposure, allowing for comparative analysis across affected countries, neighboring countries, and the broader region. The results reveal a sharp and persistent decline in FDI following Ebola outbreaks, especially in directly affected countries, driven by heightened uncertainty and investor risk aversion. In contrast, remittance inflows exhibit a counter-cyclical pattern, rising significantly in affected countries as diaspora communities respond to increased financial needs. Spillover effects are also evident: neighboring countries experience FDI losses but weaker remittance responses.